Selling a business always takes more time than the parties expect, because there are several steps after you negotiate and sign the purchase and sale agreement, writes consultant and lawyer Carrie Yardley.
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Q: I’m thinking about selling my business. How can I get ready?
ACE Advises: Housekeeping. In most business sales the buyer will want to take a good look under the hood, so as you plan for a sale, even before you have a buyer, get the business ready to withstand scrutiny.
Selling a business always takes more time than the parties expect, because there are several steps after you negotiate and sign the purchase and sale agreement. Most agreements contain contingencies that serve as safety valves, allowing parties to back out of the deal if certain conditions are not met.
If the buyer cannot get financing within a reasonable time, it makes no sense to continue. Similarly, buyers do not want to go into debt unless they can take a closer look at the business’s value. This is the purpose of due diligence — a phase when the buyer asks questions, asks for documents, and looks at the business’s records — and contingencies generally depend on buyer’s satisfaction with what it finds.
If you are not prepared, due diligence can drag on. If the buyer does not use a contingency to walk away immediately, it will probably dictate corrective measures, negotiate price adjustments, or both. A delay of several months is not unusual.
The scope of due diligence varies with the value and complexity of the transaction, but some items are routine. While a buyer is unlikely to want a full audit, it will want to know whether your books and records are accurate. Are all of your environmental and regulatory permits in place? Is your lease assignable? Are there legal skeletons lurking in your closet?
It is easy to anticipate the questions, so you might as well find out the answers. It is easier and cheaper to deal with issues while you have time, and not when the buyer’s financing commitment is about to expire.
Carrie Green Yardley, a lawyer, founded Yardley Esq. PLLC in 2015. The firm works with small businesses and their owners from startup to exit. Carrie is on the ACE board and is its incoming vice president. She can be reached at carrie@yardleyesq.com
